This is Social Security's Magic Number

[MULTIZ321]

This is Social Security's Magic Number - by Philip Moeller/ Retirement/ Social Security/ Money/ Time.com

"You probably know you get a bump in monthly Social Security income for each year you delay benefits between ages 62 and 70.

What you may not be aware of: all the goodies you can get on one birthday in that stretch—your 66th, which Social Security defines for now as “full retirement age” (FRA)..."

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I know there is another ongoing thread about Social Security issues. I decided to keep this separate because the underlying rules are important to understand, even if they are confusing and you certainly don't want to make a costly mistake.

Richard

 

[puppymommo]

This is probably a stupid question, but...

Does anyone know what happens if you retire at say age 62 and don't take social security until your FRA?

I have a pension that I can draw from and probably live on until 66 or maybe even 70. Will my benefit amount increase even though I am no longer paying into SS?

 

[vacationtime1]

This is probably a stupid question, but...

Does anyone know what happens if you retire at say age 62 and don't take social security until your FRA?

I have a pension that I can draw from and probably live on until 66 or maybe even 70. Will my benefit amount increase even though I am no longer paying into SS?

The short answer is yes.

Your benefit amount will not be subject to a discount for calling for your benefits early. For example, the pension that would pay you $1,000/month at age 66 will get you only $750/month at age 62.

 

[Passepartout]

This is probably a stupid question, but...

Does anyone know what happens if you retire at say age 62 and don't take social security until your FRA?

No stupid question at all. Your monthly stipend will increase with every month you delay collecting it until age 70.

 

[PigsDad]

On a related train of thought, what affect does retiring early have on your SS benefit? For example, if I retired at 55 (stopped earning a salary, stopped paying into SS), how would that affect my benefit compared to working until 60? In either case, not taking my SS benefit until my FRA of 67.

Is there any guideline on how not working the last 5 or 10 years before FRA would affect your SS benefit amount?

Kurt

 

[Elan]

On a related train of thought, what affect does retiring early have on your SS benefit? For example, if I retired at 55 (stopped earning a salary, stopped paying into SS), how would that affect my benefit compared to working until 60? In either case, not taking my SS benefit until my FRA of 67.

Is there any guideline on how not working the last 5 or 10 years before FRA would affect your SS benefit amount?

Kurt

I'm no expert, but your benefit is based on an average of your top 35 earnings years, IIRC. So if you don't have 35 years in, you'll get a zero in earnings for each deficient year. Someone correct me if I'm wrong.

ETA; I think it's a monthly average, so you might not get a zero for partial years. At any rate, for most people, counting the early earning years instead of the later earning years could be painful

 

[VacationForever]

http://www.myretirementpaycheck.org/social-security/how-are-benefits-calculated.aspx

 

[Blues]

Is there any guideline on how not working the last 5 or 10 years before FRA would affect your SS benefit amount?

http://www.socialsecurity.gov/pubs/EN-05-10070.pdf

This is the best, most detailed explanation of how your PIA (Primary Insurance Amount) is calculated. Look in particular at Step 5 a/b/c on page 2. Once you've figured your AIME (Average Indexed Monthly Earnings), the benefit uses graduated brackets, kinda like your income taxes in reverse.

For the first $826 of AIME, you get 90%
Then, up to $4980 of AIME, you get 32%
Above $4980 of AIME, you get 15%
(All brackets for 2015. They're inflation indexed for the future)

So, it all depends on whether you're a high earner or not. Yes, it's true that you average 35 years of earnings, so stopping before that time reduces your AIME. But I'll claim that if you're a high enough earner that you exceed $4980 despite averaging in those zeroes, then your increase in benefit from continuing to work is too small to be a concern. Make your decision based on other factors.

HTH,
Bob

 

[Blues]

Another way to look at it is like this (I once did this calculation for a retirement web site). Once you have enough AIME to be in the 15% bracket:

If you earn an additional $1000, you and your employer will pay a total of $153 in extra FICA/Medicare tax.

For that, your monthly SS retirement check will increase by slightly less than 36 cents.

Bob

 

[geekette]

One can quit work and not claim SS and nothing really happens except it waits for you, getting bigger.

A few years back, I went the other direction, playing what if my salary is suddenly 10x current for the next 10 years of work? Eh, little difference. I have a full record and so am to the point where lowest years drop off. Doesn't seem to matter much.

So I therefore think that if you have a full record, don't worry about sloughing off a few years, it's not going to make enough difference to fret over it. in fact I do plan to exit work a few or a dozen years before claiming SS.

 

[winger]

I've recently gone to a condensed, primer/introductory session on different aspects of retirement. First, it was a very mind boggling experience given the amount of things to consider. Distribution (example SS) was one of the major items/sections covered . One big takeaway I got about this section was order in which you take distributions (e.g. pension, SS, IRA, 401k) in combination with other income sources (e.g. savings, rental income, etc.) could impact the amount of taxes you pay. I will need more education in taxation strategies.

 

[John Cummings]

Another way to look at it is like this (I once did this calculation for a retirement web site). Once you have enough AIME to be in the 15% bracket:

If you earn an additional $1000, you and your employer will pay a total of $153 in extra FICA/Medicare tax.

For that, your monthly SS retirement check will increase by slightly less than 36 cents.

Bob

I started collecting SS at my FRA. I worked one more year after I started collecting. They increased my SS monthly payment because of the extra year I worked and I was always a high income earner. So I would expect that retiring at 55 would reduce your payment considerably.

 

[VacationForever]

I've recently gone to a condensed, primer/introductory session on different aspects of retirement. First, it was a very mind boggling experience given the amount of things to consider. Distribution (example SS) was one of the major items/sections covered . One big takeaway I got about this section was order in which you take distributions (e.g. pension, SS, IRA, 401k) in combination with other income sources (e.g. savings, rental income, etc.) could impact the amount of taxes you pay. I will need more education in taxation strategies.

Moving out of CA will help with taxes too...

 

[John Cummings]

Moving out of CA will help with taxes too...

That is not necessarily true. I have a pretty high retirement income and don't pay very much in California. I checked into moving to Texas and discovered that my taxes would be much higher because of their high property tax which far exceeded my state income tax here. Social Security is 100% exempt from California state income tax.

 

[WinniWoman]

That is not necessarily true. I have a pretty high retirement income and don't pay very much in California. I checked into moving to Texas and discovered that my taxes would be much higher because of their high property tax which far exceeded my state income tax here. Social Security is 100% exempt from California state income tax.[/QUOTE

This can be very true in a lot of instances. We are talking about this now- still have many years to go- but planning. We want to move to NH- but I love Vermont more- and we live in NY. There is so much to consider. On the face of it- NH is better because of no income and no sales tax. No taxes on SS. Property taxes are high- but not as high as NY. Cost of housing, though, is high unless you move to the boon docks. But our son lives there. We joined the Free State Project as well committing to move there at some point because of the politics.

Vermont's housing is less, taxes high, but not like NY, but it taxes SS. It also taxes estates. Not good with a lot of the politics, but very good with a certain other law there.

NY does not tax SS or estates in our $$ category. NY property and school taxes are outrageous. Income taxes are high. Housing is outrageous in many areas, but in our area our home values have plummeted. Hate the politics.

What to do, what to do....I think I am leaning on moving to Vermont anyway, if we can ever sell our home. Don't know...Still have 6 years to think about it.

 

[tashamen]

Vermont's housing is less, taxes high, but not like NY, but it taxes SS. It also taxes estates.[/QUOTE]

This is why we're moving out of VT as soon as we retire, as much as we love it for other reasons. Our property taxes are super high, and I even have to pay VT income tax on my salary from my job in NH (which has no income tax). For various reasons we can't move to NH right now (nor will we when we retire).

For us, moving abroad is a realistic option in retirement, and is looking better every day.

 

[WinniWoman]

Vermont's housing is less, taxes high, but not like NY, but it taxes SS. It also taxes estates.

"This is why we're moving out of VT as soon as we retire, as much as we love it for other reasons. Our property taxes are super high, and I even have to pay VT income tax on my salary from my job in NH (which has no income tax). For various reasons we can't move to NH right now (nor will we when we retire).

For us, moving abroad is a realistic option in retirement, and is looking better every day."[/QUOTE]


I don't know what you pay, but from what we have seen, Vermont property/school taxes are half what they are in NY for the type of house/property we have. To us that is a good thing, but certainly not as good as, let's say, Delaware, where property taxes can be under $1000, plus no income or sales tax. But don't think I would like Delaware. Don't like that Vermont taxes SS and estates.

Same in NY as far as taxes- people who work in NJ have to pay NY taxes. Or people who live in PA, for ex, and work in NY have to pay NY taxes. We don't have that issue at least.

Overseas not for us. I could maybe try it for a year- but even then, I like Scotland and that is no bargain. LOL! But hubby couldn't anyway and I don't want to be far from our son, so that's out.

Well, we still have the NH option!

I guess there is no Utopia.

 

[VacationForever]

That is not necessarily true. I have a pretty high retirement income and don't pay very much in California. I checked into moving to Texas and discovered that my taxes would be much higher because of their high property tax which far exceeded my state income tax here. Social Security is 100% exempt from California state income tax.

When someone tells me that he/she has pretty high retirement income, I normally ballpark it as $200K+ per year. At 200K, say 70K comes from SS for a couple, the rest are made up of pension (lucky devils)/IRA distribution/non IRA capital gains (taxed as income in CA), we are looking at 130K and at about 10% income tax in CA, it will be about 13K per year.

Where my CA home is right now, while property tax is only 1%, there is another 1% from mello roos and every year there seems to be additional bonds added to it.

We bought another home in Henderson NV with plans of retiring there and while it is only slightly cheaper than our CA home, the property tax is a quarter of that of our CA home.

 

[tashamen]

I don't know what you pay, but from what we have seen, Vermont property/school taxes are half what they are in NY for the type of house/property we have. .[/QUOTE]

Of course the rates differ widely in NY as well as in VT. Just for kicks I looked up houses in Pine Bush on realtor.com, and there were several houses close to what my house is currently valued at. The property taxes on them were about $500 per year higher than what I pay in VT, so nowhere near twice as much.

I'm just pointing out that averages can be misleading - no offense intended.

 

[John Cummings]

When someone tells me that he/she has pretty high retirement income, I normally ballpark it as $200K+ per year. At 200K, say 70K comes from SS for a couple, the rest are made up of pension (lucky devils)/IRA distribution/non IRA capital gains (taxed as income in CA), we are looking at 130K and at about 10% income tax in CA, it will be about 13K per year.

Where my CA home is right now, while property tax is only 1%, there is another 1% from mello roos and every year there seems to be additional bonds added to it.

We bought another home in Henderson NV with plans of retiring there and while it is only slightly cheaper than our CA home, the property tax is a quarter of that of our CA home.

We don't pay Mello Roos so our total property tax is 1.12%. We have never paid it on any of the 7 homes we have owned in both Southern and Northern California. Actually the rate is considerably lower than 1% on the current value because of Prop 13.

 

[WinniWoman]

I don't know what you pay, but from what we have seen, Vermont property/school taxes are half what they are in NY for the type of house/property we have. .

Of course the rates differ widely in NY as well as in VT. Just for kicks I looked up houses in Pine Bush on realtor.com, and there were several houses close to what my house is currently valued at. The property taxes on them were about $500 per year higher than what I pay in VT, so nowhere near twice as much.

I'm just pointing out that averages can be misleading - no offense intended.[/QUOTE]

None taken.

Oh, I know. For sure. For example, we pay almost $9000 per year in both school and property taxes. No services except snow plowing. Pine Bush is misleading because it encompasses three counties with the common denominator being the school district. I live in Sullivan county; others in Orange and others in Ulster. Some people in VT we have spoken to have much more land and so on and said they pay like $5000.

Others in nearby Orange County with a different school district are paying upwards of $20,000 per year! Yup! You read that right!

Crazy! VT and NY are such beautiful states with so much to offer. Too bad they are so expensive! It seems like a lot of the beautiful states, like even California, are very expensive.

 

[Blues]

When someone tells me that he/she has pretty high retirement income, I normally ballpark it as $200K+ per year. At 200K, say 70K comes from SS for a couple, the rest are made up of pension (lucky devils)/IRA distribution/non IRA capital gains (taxed as income in CA), we are looking at 130K and at about 10% income tax in CA, it will be about 13K per year.

200K isn't pretty high, it's a very high retirement income. But taking it at face value, using your own numbers...

For 130K gross income (net of SS) for a married couple, after standard deduction and exemption credits, I get a total tax of $6147, using the latest rates published by the CA FTB (2014). Not a trivial amount, but not $13K either.

Bob

 

[x3 skier]

I've never done a real in depth analysis but it seems to me, just about all the states have the same basic services that have to be paid with taxes from some place. If it's no income tax, there's got to be taxes on something else to pay for the services. Same thing if property taxes are low, there's something else to generate revenue to provide the services. Nirvana is retirement (pension, SS, ETC) is exempt from a high income tax, property taxes are low as are other taxes including personal property taxes. If such a place exists, it would probably be flooded with retirees and rapidly go broke.

On the subject of Social Security, I retired from one job at 55, started my own business and then waited till my FRA to start taking SS. Made the most sense to me and probably was a pretty good bet since I died last August and was revived with an AED. . The SS Checks were and are used for travel and other luxuries. If I had waited until 70 and not been revived when my heart stopped, I would have missed a lot of fun.

Cheers

 

[winger]

That is not necessarily true. I have a pretty high retirement income and don't pay very much in California. I checked into moving to Texas and discovered that my taxes would be much higher because of their high property tax which far exceeded my state income tax here. Social Security is 100% exempt from California state income tax.

According to some studies, one key component of relocating at retirement would be who is at the 'destination'. Unfortunately, being first generation, we do not have family outside of California (all our relatives are either in San Fran or Los Angeles (LA) areas) so this could limit our out-of-state options. I don't really like LA, aside from visits to Newport Coast and/or Disneyland - that leaves our current San Fran area.

So, your statement of not paying very much taxes in California is interesting.
Is there something(s) you are doing specifically (out of the norm) to help curb taxes?

 

[winger]

...

We bought another home in Henderson NV with plans of retiring there and while it is only slightly cheaper than our CA home, the property tax is a quarter of that of our CA home.

Have you looked at average electricity bills in Hnderson? I venture to guess due to heavy AC usage during 1/2 the year, you could be paying upwards of $300-400/mo certain months. Would that put a dent in your budget when compared to say somewhere with more moderate temperature here in Calif?